How did they determine the price of a commodities like gold, silver and crude oil?

i have been wondering how did they know the price of gold is at certain amount and sometimes it goes up or down. then this price is being used throughout the whole world.. its amazing how this world commodities are being determined by a few people....who determine the price? how they did it?

Public Comments

1. It's based on how much supplies of any particular commodity we have. It is determined by the stock market, i.e the FTSE, Dow Jones etc. It's a complicated topic but basically it is deduced on the political climate of the world at any time. For oil etc. it depends on how much is being produced, how much is left to produce and how long we shall be producing it. Likewise for gold.
2. This is one of the so called black arts. dealers trade these commodities on the open market it works pretty much like an auction so the price is set by the buyers .This is why when OPEC reduces production the price increases because buyers are bidding for smaller amounts of crude .The problem with this system is that buyers and sellers sometimes work for the same company but for different clients and the same product can be traded thousands of times before it gets to the consumer.When you are dealing in millions of pounds a half percent profit generates thousands of pounds of income all done electronically and 24 hours a day.Some items are not even owned by the people buying and selling them it is just a paper exercise.One of the main reasons we are in the shit as much as we are.
3. There are specialist exchanges that trade different commodities, the market price is set in the same way as it is on the stock exchange and foreign exchange markets, the price goes up and down according to supply and demand and macro economic factors - the oil price is heavily influenced by the USD exchange rate as is gold - gold is a considered a safe have in troubled economic times which is why the price is so high at the moment. In turn the oil price is influenced by the strength of the US economy not just consumption levels.
4. Prices are set by supply and demand. An exchange for a given commodity facilitates the buying and selling process. Look up any stock at http://finance.yahoo.com or the price of gold at http://www.kitco.com You will see two prices: a "bid" price, which represents the highest price someone is willing to pay, and the "ask" price, which is the lowest price someone is willing to sell it for. The ask price is always higher that the bid price, but as you can imagine, the prices can change over time. In a well-defined market, the bid and ask prices are fairly close together. As far as 1 person setting a price, it's not quite true. While there are London fixes, and New York fixes, the prices are actually determined by all the buyers and sellers. Suppose you are in the International Monetary Fund, and you want to sell 400 metric tons of gold to get some ready cash. If you start selling at the bid price, eventually all the people who are bidding that price run out of money, and the lower bidders become the current "bid" price. Assuming you want the most money for your 400 tons of gold, you would do well to sell it in small parcels, or find a private buyer, so that prices do not fall. It you are a buyer, like China, with 6 Trillion US$, you could start buying gold at the ask price, but eventually you will have bought up all the gold at that price, and the ask price then goes up. So the solution is to buy it in small lots, or contact someone like the IMF and work out a private purchase. Grandpa